Hertz hurts. The company expected a challenging first quarter, but got more than it bargained for: On Thursday, it reported an adjusted net loss of $392 million. Despite rising demand for rental cars, Hertz said the company has been hurt by its fleet of electric vehicles, mostly made up of Teslas, because they are unreliable and more expensive than their gas-guzzling counterparts.
The car rental company plans to dispose of an additional 10,000 electric vehicles than originally planned – and aims to sell a total of 30,000 in 2024. Due to the loss in value of its electric vehicles, the company had to pay a $195 million charge, which was exacerbated by Tesla’s price cuts. Hertz said the monthly depreciation cost for its vehicles is $592 per car, which is considered high in the industry. Valued at $1.43 billion, Hertz has nearly halved its market cap compared to six months ago. The stock is down more than 40% this year and is currently trading at $4.68.
“Fleet and direct operating costs weighed on performance this quarter,” Hertz CEO Gil West said in its earnings release Thursday. “We’re tackling both problems – providing the right vehicle supply at an acceptable capital cost and driving at the same time. Productivity increases and operating costs decrease.” West, who joined the landlord on April 1, was tasked with righting the sinking ship.
Hertz’s difficult period reflects the electric vehicle industry’s difficulties and Tesla’s broader narrative of declining sales amid increasing competition and safety issues. Tesla said Wednesday it halved first-quarter profit as demand slowed and shareholders were skeptical of CEO Elon Musk’s fixation on fully autonomous cars, an ongoing project that has not yet come to fruition. Last week, Tesla recalled all of its 2024 Cybertrucks due to concerns about the defective accelerator pedal. The company also announced that it would reduce the prices of three of its models by $2,000.
A failed bet on Tesla
But before Tesla was a thorn in Hertz’s side, it was actually its salvation. The pandemic drained the tourism and travel industry in early 2020 and drove Hertz into bankruptcy. However, the company managed to establish itself thanks to achieving meme stock status and a $5.9 billion infusion of new capital from private equity firms Knighthead Capital Management and Certares Management.
Within months of bankruptcy, Hertz ordered 100,000 Teslas to be added to its fleet and worked with Uber to add 50,000 electric vehicles to the network within two years. Hertz had set a lofty goal of converting 25% of its fleet to electric vehicles by the end of 2024. The move was so huge that it turned Tesla into a $1 trillion company.
“Our approach is very strategic and very deliberate in terms of how we want to revolutionize ourselves and hopefully the industry,” Mark Fields, then interim CEO of Hertz, told Bloomberg at the time. “Instead of asking why, we ask why not.”
But by the end of 2023, the tide of Hertz’s electric car hopes had turned: Tesla was already cutting prices to meet slowing demand, and then CEO Stephen Scherr said the cost of repairing Teslas was twice as high for filling cars with gasoline. Hertz announced in January that it would sell 20,000 of the cars in favor of gasoline-powered vehicles. The landlord apparently couldn’t escape Tesla’s misfortune. By the end of the month, Tesla recalled nearly 200,000 cars in three models with autonomous driving features because problems with the rearview mirror display could increase the risk of accidents.
Hertz recently made management changes to stem the bleeding. In March, Scherr, who led Hertz’s efforts to promote electric vehicles, stepped down as CEO, paving the way for a takeover by West, the former chief operating officer of General Motors’ robotaxi division.
While Hertz is still suffering from the strain on its electric vehicles, analysts argue that these problems have actually been brewing for years.
“The implementation and marketing of electric vehicles has been a horror show across the board,” Wedbush Securities analyst Daniel Ives told CNN in March. “It’s a black eye they couldn’t recover from.”
This story was originally published on Fortune.com